Stephen S. Roach, former Chairman of Morgan Stanley Asia and the firm's chief economist, is a senior fellow at Yale University's Jackson Institute of Global Affairs and a senior lecturer at Yale's School of Management. He is the author of Unbalanced: The Codependency of America and China.

According to the IMF (and other sources), China has the largest economy in the world (number one, not number two). The more detailed data on steel, coal, cement, and electricity production support this conclusion. China is far ahead of the U.S. in most (but not all) respects.

The growth of domestic consumption in China has indeed been quite disappointing. As Professor Roach points out, the lack of stability in social support could be a reason as to why domestic consumption hasn't picked up - people don't feel secure and therefore prefer to save more as a precaution.

However, I think that culture also has a large role to play in this. Historically, China has had one of the highest Propensities to save. When I lived in China I often heard people wonder at the American spending culture. They couldn't understand how people could spend so much on credit and work up so much debt. While the culture in China is definitely changing I think that it will be a slow transition, rather than a fast one like the government had hoped for.

These two are not China's problem. Never have been. In some cultures, the Western civilization included, these have been a huge problem historically. For example religious violence and oppression was such a huge problem that the US has to explicitly written into its constitution the clause for religious freedom. And I have to say by and large it has works wonder on the American society, with a few exceptions of religious violence.

The producer model was easy. Dirt cheap products demanded by Western countries. Household consumption is way too ambitious to be achieved with a clap of hands. To foster internal demand better educate people to save. Once they reach a minimal savings level, they will throw the rest at consumerism.

Since early 2016 most worldwide credit creation was directly attributable to China. But coming back towards the producer model does not guarantee credit creation rates will be maintained. On the contrary, they may reverse course (it is starting to look that way, but it is too early to know).

Adding capacity to current overcapacity looks insane. Wage growth will be much slower than thought, and in all likelihood infrastructure targeted leap frog might be somehow slowed from initial plans.

The current fall of the dollar is in its infancy, How can the dollar start a downfall while the FED is starting to uplift rates? C H I N A. Soooo simple. China needs a lower dollar (lower Yuan) to revive the producer model while the savings mentality percolates within the Chinese people. That will take time...

So China will be back to exporting deflation in earnest, the long end of the US curve will crater, and Yellen will yell at every coming FOMC gathering before her inevitable replacement. America First needs its scapegoats.

When the Fed takes action in any given direction, History proves that it does NEVER reverse course until (1) previously targeted rate policy levels have been attained and (2) after a period of time has elapsed, observable (data-dependent) inefficiency of attained rate level suggests reversing course is warranted. The longer it takes for the Fed to lower its pants, the deeper the coming financial dislocation and uncertainty.

If President Trump can not pass tax cuts as he campaigned, additional gargantuan US fiscal deficits will do wonders for Chinese exporters, as it will add fuel to the burning value of the dollar.

I can't fault an economist for seeing 2020 in economic terms, given its ambitious economic goals.
But the economic goals were only a means to a clearly-stated end: the establishment, for the first time in China's history, of a xiaokang society in which, as PM Wen put it, ‘a society in which no one is poor and everyone receives an education, has paid employment, more than enough food and clothing, access to medical services, old-age support, a home and a comfortable life’.

So far, so economic.

But the reason for establishing such a society was so China could move on–en masse–to the next stage of social development, a xiaokang society.

A xiaokang society has many desirable characteristics but Confucius defined it simply as one in which nobody would need to lock their doors at night.

Yhe Deng mandate will have been honored and his goals met by 2020. It will be up to President Xi to set the tone for the next 70-100 years.

For those who read Chinese Classical Poetry, I present herein the following:
[七绝 二萧平韵 平起正格] 小康梦
王颜铸作于2017年5月28日星期日
小康疑梦日遥遥，卅载心疲答圣朝。
利豺资虎齐长啸，何处生民有渡桥？
For those who do not, an English translation is given below:
Dream of Xiaokang
It's a suspicious dream at the best, moving away daily,
For over thirty years my heart has been tiring,
That's what I can pay back my royal court.
Oh, listen to the profit jackals and capital tigers together howling!
Where in the world are bridges tiding people over?

No human rights problems then.
No factories for plastination of bodies from unknown sources
No problems with ethnic minorities
No interference in religion
When is this due to occur then, are such things outwith the objective

As industrialised China is circa 20% of the population on the East Coast it points to the size of the problem as 80% of the population is largely in a rural environment. IF China was to fully industrialise you have to wonder where all the product would go at 5x tcurrent output; because even if China becomes a domestic consumer market the scope for production would wildly exceed domestic consumption capability. The OBOR appears to be an attempt to build a trade network and infrastructure to further China's export potential long term. The question then becomes will it deliver quickly enough. China is on the hook because industrialisation has delivered plenty for China but the model so heavily invested in has slowed and making similar gains is going to become harder and harder. As other developing economies try to parrot China market saturation is inevitable leading to questions about investment and FDI in any number of locations. I can't help feeling that what has happened has been the picking the easy fruit and was a transitional event harvest

To describe China's development as "picking the easy fruit" seems a little harsh when they have pulled off an economic transition unparalleled in World history. That said, you perfectly frame the challenge of the 80/20 economy which now faces almost every nation in one form or another. Given the miserable failure of the populist movement in the West to come up with any sensible solutions, it will be fascinating to see if China, with a very different economic and social culture, can forge a different path. However, my money would actually not on China, but on its larger neighbour, India. If they go ahead with the implementation of a Universal Basic Income it could open the door to a completely different economic model, with profound implications for the future of Global growth.

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